NOTE PAYABLE AND DEBT ISSUANCE COSTS

6 Months Ended

Jun. 30, 2013

NOTE PAYABLE AND DEBT ISSUANCE COSTS [Abstract]

NOTE PAYABLE AND DEBT ISSUANCE COSTS

4. NOTE PAYABLE AND DEBT ISSUANCE COSTS

Note payable consists of the Company's loan agreement with HC Royalty, as lender, under which the Company agreed to borrow $50.0 million in two $25.0 million tranches. The Company drew down the first tranche in the amount of $25.0 million in December 2012 and received the second tranche on May 21, 2013. The loan bears interest at an annual fixed rate of 10.75% of outstanding principal and quarterly interest payments are included in interest expense in the Company's Condensed Consolidated Statements of Comprehensive Loss for the quarter ended June 30, 2013. Principal payments, when made, reduce the Company's note payable balance. There is a synthetic royalty component based on net product revenues, including PROCYSBI, in a calendar year, and such royalty is payable quarterly. With respect to the first $25.0 million tranche, for each calendar year (prorated for any portion thereof), the loan bears a royalty rate of 6.25% of the first $25.0 million of PROCYSBI and future approved product net revenues for such calendar year, 3.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $25.0 million and not in excess of $50.0 million, and 1.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $50.0 million, payable quarterly. With respect to the second $25.0 million tranche, for each calendar year (prorated for any portion thereof), the loan bears a royalty rate of 6.0% of the first $25.0 million of PROCYSBI and future approved product net revenues for such calendar year, 3.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $25.0 million and not in excess of $50.0 million, and 1.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $50.0 million, payable quarterly.

The Company received marketing approval of PROCYSBI from the FDA on April 30, 2013 and commenced shipment of PROCYSBI during June 2013, and as a result, royalties became payable to HC Royalty based upon net revenues of PROCYSBI. As of June 30, 2013, royalties payable to HC Royalty are recorded as interest expense. Approximately $2,000 was accrued based on net revenues for the three months ended June 30, 2013. As of June 30, 2013, the Company's note payable balance was $50.0 million.

The royalty costs are classified as interest expense in the Company's Condensed Consolidated Statements of Comprehensive Loss and accrued liabilities on the Company's Condensed Consolidated Balance Sheets. The Company has not yet had sufficient revenue data to estimate future revenues as of June 30, 2013. The loan and the Company's obligation to make any payments shall terminate immediately when all payments received by HC Royalty equal $97.5 million. If, by December 20, 2014, net revenues for the immediately preceding four fiscal quarters exceed $100.0 million, then the loan and the Company's obligation to make any payments shall terminate immediately when all payments received by HC Royalty from the Company equal $90.0 million. Debt issuance costs, which were capitalized and included in other long-term assets, are being amortized over the life of the loan using the effective interest method. The amortization of debt issuance costs is included in interest expense in the Company's Condensed Consolidated Statements of Comprehensive Loss.